Veolia and Suez to rein in spending in 2009

And, both companies have said they plan to significantly reduce their rate of investment in 2009 and roll out cost-cutting programmes as they look to respond to the challenges created by the current global economic slowdown.

Annual results published today (March 6) for Veolia Environnement, which owns Veolia Environmental Services in the UK, revealed that its net income was down from 928 million euros (£827 million) in 2007 to 405 million euros (£361 million) last year.

The company explained that the majority of this fall was down to its waste management business in Germany, where the process of writing off the value of its 'goodwill' and other intangible assets wiped 430 million euros (£383 million) off its balance sheet.

Markets

While it's German waste operations bore the brunt of the a fall in activity in the fourth quarter, and overall its UK waste division experienced 8.6% growth in 2008 due to integrated contracts it won, the company revealed that the downturn in recycling markets had hit all its waste management services.

It said: “The division's overall performance has been considerably affected by the economic crisis since September, with a drop in volumes processed for industrial customers in particular and a significant decrease in the prices for recyclable materials.”

However, it added that its UK performance had remained “satisfactory” due to a reduction in fixed costs.

The effect of the downturn on its waste businesses was also made clear by Suez, which, in its results which were published on Wednesday (March 4), said: “The impact if the deterioration in the economic environment directly affects the operations for industrial and commercial customers and the recycling businesses.

“The observed tendency seen during the 4th quarter 2008 was reinforced during the month of January 2009,” it added, revealing that “about half of its waste revenue was impacted by the economic slowdown”.

Prospects

Looking to its prospects for 2009, Veolia revealed that it planned to “generate positive free cash flow”, through a number of measures including reducing its net investments by at least 1.6 billion euros (£1.42 billion), or 44% less than it invested in 2008, to less than 2 billion euros (£1.8 billion).

It also said it would look to increase the value of the assets it sold off, from 761 million euros (£678 million) in 2008 to at least 1 billion euros (£900 million) in 2009 – and 3 billion euros (£2.7 billion) in total between 2009 and 2011.

And, it outlined a plan to cut costs by 280 million euros (£249 million), of which 100 million euros (£89 million) would be “in connection with the waste management division's new plan to adapt to the current business climate”.

Veolia Environnement's chairman and chief executive, Henri Proglio, outlined just why he was positive about the company's future, and said: “The nature of our contracts offers good visibility through our recurring cash flows. We have a strong financial structure, an average debt maturity of more than nine years and net liquidity of 4 billion euros (£3.6 billion).

“These strengths and the complementary nature of our businesses allow us to face the current business climate with confidence but also with prudence.

“In 2009, our efforts will be intensified and focus on the reduction of costs and improving the generation of cash flows,” he added.

Suez

Suez Environnement said that, despite the difficulties faced by its waste operations due to the slowdown, it achieved a 5.6% organic growth rate in 2008 to reach revenues of 12.4 billion euros (£11 billion), while its UK and Scandinavian waste arms grew by 4.2%.

But, it reduced its growth target for revenues and earnings to “low single digit”, and said it would accelerate its cost cutting programme, as well as implementing a “temporary slowdown” of investments (excluding strategic acquisitions), down by 25% in 2009 compared to 2008.

Jean-Louis Chaussade, chief executive of Suez Environnement, commented: “With sustained, profitable growth and a strong capacity of generating free cash flow, Suez Environnement has a sound financial profile and a resilient business model in a deteriorated economic environment.”

“Over the short term, Suez Environnement adapts its priorities to the deteriorated economic situation to focus on free cash flow, maintain a financial discipline and strengthen selectivity of capital expenditures,” he added.